Recently a retired couple in their young 70’s with limited pension and social security income met with me at my office to discuss debt mitigation strategies. They carried a $320,000 mortgage loan into their retirement years, and, built up $35,000 of credit card debt. With “almost non-existent” savings, their credit card debt became the source of repair and maintenance funds. They brought to the meeting a list of six credit cards with a combined debt of $35,000..
Debt is easy to get into and impossible to escape from. Sadly, the mortgage debt combined with the credit card debt landed this couple into a financial jail cell. At the table in my office I laid out a plan that would allow them to escape from this jail and obtain financial peace. The plan involved both a refinance to a Reverse Mortgage and their commitment to a debt snowball credit card balance elimination plan. The reverse mortgage allowed us to replace their current mortgage with a low fixed rate mortgage and no monthly mortgage payments. Our original plan was to refinance with a large enough mortgage to payoff both the mortgage and the credit card debt. A lower appraised value prohibited us from paying off the credit card debt.
The lower appraised value may have been a good thing. The proposed reverse mortgage was eliminating their mortgage payments–relieving about $1600 of monthly mortgage payment. Together, we discussed using some of this monthly savings to employ the Debt Snowball method of paying off consumer debt (see chapter 7 of my book Beyond the Stampede). The conversation grabbed their full attention as I showed them how they can, one step at a time, eliminate all there credit card debt in 19 months! What’s more, their countenance broadly smiled as I showed them how they will save over $19,000 by the end of the third year! Yes, out of debt, and, a small savings that will allow them to stay out of debt. Most importantly, working as a couple on the Debt Snowball credit card balance elimination plan allowed them the hope of achieving financial peace.